Signed, sealed, defaulted
Sam Younger explains why late filing of charity documents is avoidable - and unacceptable.
One of the Commission’s senior accountants recently conducted some research into the profile of charities that were late in filing their annual accounts in 2011.
It was a fairly routine piece of work, and part of our wider programme of spot-checking charities’ accounts. We didn’t expect it to reveal anything particularly exciting.
But what she found, took her - and me - by surprise. And it has helped harden the Commission’s attitude towards the problem of late filing.
Her most astonishing finding was that over a third (35%) of the accounts examined had in fact been prepared and signed in good time (see footnote 1). They just hadn’t been submitted to us. A case of signed, sealed - and then placed in a drawer while the charity’s entry on the Register turned from green to red and the charity’s potential donors were left in the dark about its finances and activities. This is all the more surprising given that online filing is pretty much instantaneous. There need not be any gap at all between a charity’s accounts being signed off and submitted online to the charity’s register entry. (endnote 1)
And there were other findings that, taken together, tell of a curious lack of urgency towards meeting the requirements of charity law and complying with the principle of accountability. For instance: 39% of late filers had managed to submit their accounts to Companies House in time (see footnote 2). So over a third were perfectly capable of meeting requirements - but had chosen not to take those relating to their status as charities seriously. Similarly, only a tiny proportion of the charities we looked at (5%) prioritised filing their accounts with us over filing them with Companies House. My suspicion is that Companies House’s system of fines is the crucial factor here. (endnote 2)
Defaulting is also a habitual problem - less than a quarter (24%) of late filers had never previously defaulted. And a significant minority (18%) had filed late for five years running.
My view is that these findings bolster the case for introducing penalties for charities that are late in filing their accounts with us. In his recent review of the Charities Act, Lord Hodgson picked up on the suggestion that charities that fail to meet their deadline be barred from claiming gift aid. This recommendation couldn’t be implemented over night if it were accepted - it would require legislative change and a lot of planning as to the practicalities involved for us and HMRC.
But charities should take note that the ‘benefit of doubt’ balance is shifting: in the past, we were more cautious about discussions around penalties, as any fine a charity pays detracts from the sum it can put towards furthering its charitable aim. And perhaps, in the past, there might have been a nervousness about kicking a charity while it was down - assuming that late filing was linked to financial problems in a charity. But these new findings do not suggest late filers face greater financial hardship than the sector generally.
And, as regulator, we cannot ignore mounting evidence that the public expects high standards of accountability and transparency from charities. The most recent independent research into public trust and confidence in charities reveals that 96% of those asked said it was important to them that charities provide the public with information about how they spend their money. And the single biggest reason some charities are trusted less than others is that people feel they don’t know how they spend their money.
It’s important to remember here that most trustees do take their duties seriously and dedicate considerable time and energy to managing and developing their charities. After all, 86% of all charities on the Register filed their accounts on time in 2011-12. And it is precisely the interests of those well managed, conscientious charities that we are bearing in mind while reviewing our approach to defaulters, the outcomes of which we will be making public in due course. After all, bad practice by the minority can affect trust in the majority. My ultimate hope is that we can tackle the habitual, avoidable defaulting this research has uncovered now, and work towards making this level of defaulting a thing of the past.
1 Figures based on sample of 400 charities that filed their annual accounts late in 2011, unless otherwise stated. Figures relating to signed accounts based on proportion of sample whose filed accounts included signature (290).
2 Figures relate to charities that are also companies - unincorporated charities are not required to file documents with Companies House.